It’s not uncommon for clients and buyers to seek discounts on your products or service solutions. From the customer’s perspective, there can be many reasons to ask for better pricing: lack of perceived value, insufficient funds, better quotes from competitors, and so on. After all, who doesn’t like to get the best possible deal, right? But when business and sales professionals accept a lower price, it opens a veritable Pandora’s Box of likely problems that could put your business at risk. Here’s how discounting hurts your business, along with some alternatives that can keep you from sacrificing profit:
Discounting is Bad for Business Because…
It lessens the perceived (and therefore, actual) value of your product or service solution.
Simply put, if the customer asks for and receives a discount – regardless of the reason – the perceived value of your solution automatically goes down. There’s an old adage that says an item is only worth as much as someone is willing to pay. So if the price is lower than your claimed value, the actual value can really only match the price paid. And this new belief system can put you in a bad position for future business.
It creates an expectation of future discounting.
That bad position – with this customer or others in your industry who learn of your discounting practices – only gets worse when the expected pricing is at a discount. And because your earlier discounts have lowered the bar on the perception of value, why should they pay more? Would you? Discounting sets a bad precedent that undermines your future opportunities to maximize margin.
It complicates your business dealings.
When you offer a discount to one customer, but not to another (perhaps because they didn’t push as hard for it), you are suddenly operating under different price structures for likely the same level of service for the same solution. A variety of pricing levels can create internal chaos and administrative nightmares, especially in larger organizations with larger customer bases.
It demonstrates a lack of confidence in your solution and erodes trust in YOU.
This goes back to the idea of value. Even if the customer doesn’t automatically value your solution as you would like, when you start to discount, it shows that you don’t really believe your value proposition either. Prospects sense this lack of confidence and question two things: 1) Is this solution as good as I thought if they are willing to accept less? and 2) Can I really trust this person who wants me to buy it?
It squeezes your profit margin unnecessarily.
Obviously, if you sell a product or service at full price, your margin will be higher than if you sell at a discount. Conversely, the profit margin you lose through discounting has to be made up for in future opportunities, causing you to exert more sales effort and close more deals at a higher price to compensate.
It forces you to cut corners (or at least consider cutting them).
To maintain necessary margins after selling at a discount, it will inevitably prove tempting to find ways to lower your costs – either by reducing material costs or the activities associated with servicing the account. While it is always a good idea to find ways to operate efficiently, if you feel forced to unnaturally lower your costs, you could easily cross a critical line where your perceived value takes yet another hit.
The best alternative to discounting is to be crystal clear and confident in presenting your value proposition. Ultimately, it should be irrefutable the prospect will receive an equitable return on investment. In the course of reaching that awareness it is reasonable for the prospect to ask questions, offer objections, and seek the best deal. This is all part of their due diligence as they represent their interests. But if you can answer questions and overcome objections clearly and without hesitation, the value of your solution will become appreciated, and the quoted price will be supportable. Remember, you have two choices when attempting to equalize price and value – so choose raising value over lowering price. Your customer will “get what they paid for” and you just made more money and avoided long-term issues!
Eliminate components to stay within budget
If budgetary restrictions just can’t allow the prospect to agree to your price, look for ways to reduce or eliminate components from your solution. For instance, your standard solution might include service elements the prospect is not likely to need. If you can make cuts without risking the customer’s satisfaction with your solution, these cuts can make the deal possible while allowing you to stay true to your standard pricing. Just make sure the customer is on board with the modified solution up front.
I’ve said many times that “no” is an acceptable answer. It empowers you (and your prospect) to find a better fit somewhere else. It’s better to walk away than to become hamstrung by a bad professional relationship.
It’s reasonable for customers to expect the best deal possible, but discounting creates a variety of problems for the solution provider. Ultimately, these problems can impact profit margin, customer satisfaction, and your reputation so severely they may threaten your business. Better alternatives include becoming stronger at showcasing your solution’s value, eliminating unnecessary components from your solution to match the customer’s budget needs, or walking away from a deal that won’t be profitable.
At Sales Xceleration, our licensed Advisors understand the pitfalls of discount pricing and can create sales processes and policies that support uniform pricing for maximum profits. To learn more, reach out to an Advisor today, or contact us at 844.874.7253.